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Difference Between Shares and Debentures

Difference between Shares and Debentures:

Shares:

The capital of a company is divided in several small units and each unit is called a share, a share in a company is one of the units into which the total capital of the company is divided. A share thus means a share in the share capital of a company.

Debentures:

Debenture is a security issued or allotted to the investor under the seat of the company who become creditors of the company. A debenture may , therefore, be defined as a document issued by the company as an evidence of its debt. It contains a contract for the repayment of the principal sum and the interest at a specified date to the debenture holder.

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The following points are discussed below will help in distinction between shares and debentures.

Basic of difference

Shares

Debentures

 The companies ordinance defines share are a share in share capital of the company. it is a part of owned capitalA debenture is a certificate of indebtedness issued under the seal of the company. it is thus an acknowledgement of debt
ManagementThe shareholders manage the affairs of the company through the elected representatives called board of directors.The debenture holders are not entitled to interfere in the management and administration of company as they are not the owners of the company
RightThe shareholders receive dividend when the company earns profit. They suffer financially when it suffers losses.The right of debenture holder is to receive money at a fixed rate of interest. They are no concerned with the profit or loss of a company.
Return of capitalThe shareholder are allowed to sell the shares at will to other person but they are not paid back capital, if they so desire, by the company until it is legally dissolved.The company gives an undertaking to pay back the capital along with interest at a stated time to the debenture holders.
Payment at the time of winding upIn case the company is wound up,  the shareholder have a secondary claim of the return of money on the purchased shares.On winding up the company, the first priority is to pay back the money to the debentures holders.
Voting A shareholder is entitled to vote at the company’s general meeting.A debenture holder has no right of voting at any meeting of the company.
Owners of the company.The shareholder except the preference shareholders are the owners of the company.The debentures holders are the creditors of the company and as such they have no claim on the ownership of the company. They are the creditors of the company
Profit and loss AccountDividend on shares is a charge against profit and loss appropriation account.Interest on debentures is a charge against profit and loss account.
Islamic Spirit & interestThe dividend paid to the shareholders depends upon the profit of the company. There is no fixed rate of return on the shares of the company. As such they are Islamic in character.The company is to pay fixed rate of interest to the bondholders whether the company makes any profit or suffers loss which is basically against the tenets of Islam.

About the author

Salman Qureshi

Salman Qureshi is an Accountant by profession & he loves to write on Commerce & Management Sciences Subject to assist Students. Hope you guys will like his effort.

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